The president has accepted a deal that maintains tax breaks for billionaires and establishes a huge estate-tax exemption for millionaires -- two top priorities of Republicans. In return, he gets an extension of unemployment benefits that will last only half as long as the giveaway to the wealthy. Obama says the deal will give Democrats "heartburn." It also gives them a fiscal crisis and even more serious political trouble. (WITH DETAILS OF THE DEAL, OBAMA'S STATEMENT, FRESH ANALYSIS.)

December 7, 2010

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When Barack Obama walked out of last week’s meeting with Mitch McConnell and John Boehner and started talking about developing a "productive" working relationship with Republican Congressional leaders who have sworn the political equivalent of a blood oath to destroy his presidency, it was clear that the president planned to abandon his many years of advocacy for ending Bush-era tax breaks for millionaires.

The GOP negotiators got a two year extension of Bush-era tax cuts for the wealthiest Americans.

They alsio got the elimination of the Making Work Pay tax credit, which was developed as part of a broad plan to stimulate the economy without breaking the bank. The tax credit will be replaced by a far more expensive — and more fiscally unsound — two percentage point reduction in the payroll tax.

And what did Democrats get in return? A 13-month extension of unemployment insurance benefits.

What this trade-off means is that, while billionaires will be enjoying their tax breaks until after the 2012 presidential election, the unemployed will be threatened with another benefit cut just after Christmas 2011.

Then he tried to put a positive spin on the capitulation by claiming that: "The American people did not send us here to wage symbolic battles or win symbolic victories."

Actually, there were no real victories — symbolic or otherwise — for the Democrats.

The argument will be made that Obama and the Democrats had to fold in order to secure an extension of unemployment benefits.

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As draconian as the new Republican leadership may be, the fact is that a substantial portions of the current Republican caucuses in the House and Senate—and even larger portions of the incoming Republican caucuses in both chambers—represent states where unemployment is rising. For decades, Democrats have known how to pressure Republicans from New England states such as Maine, Masschusetts and New Hampshire, as well as GOP representatives and senators from Pennsylvania, Ohio, Indiana, Michigan and other Great Lakes states, to back extensions of unemployment benefits. Nothing has changed, except that the unemployment rate is now higher than at any point in decades—and that the hurt has extended to states such as Nevada, where more Republican votes should be available for the picking.

In other words, there is no political argument for compromise in order to extend unemployment benefits. Democrats could win this fight, in the current Congress and in the next one. To think otherwise is to presume that Republicans are not politicians who, when everything else is said and done, will cast the necessary votes to secure their re-election.

Now to the fiscal calculus:

Minnesota Congressman Keith Ellison, the new co-chair of the Congressional Progressive Caucus, is right when he says that it is "dumb" to imagine that the federal government can maintain tax breaks for millionaires and achieve deficit reduction. Giving away $700 billion in tax revenues from the wealthiest Americans over the next decade while at the same time talking about deficit reduction is the fiscal equivalent of imagining that it is possible to leep "eating chocolate layer cake everyday while losing 40 pounds."

That won’t happen.

By any measure, the Democrats have the upper hand in the fiscal responsibility argument. If they barter it away now, they will lose not just the current fight but back themselves into a corner as pressure rises to respond to the "cut-cut-cut" mantra of the co-chairs of the president’s deficit commission—Republican Alan Simpson and Democrat Erskine Bowles—whose most draconian spending-cut arguments are already being adapted by Republicans such as incoming House Budget Committee chair Paul Ryan, R-Wisconsin.

If President Obama and Congressional Democrats want to maintain the resources that will be necessary to protect Social Security and Medicare, fund education programs, invest in infrastructure and prevent state and local governments across the country from slipping into bankruptcy, they have to find streams of revenue. A failiure to do so will assure that the narrative for the next two years is written by conservative think tanks that have as their primary purpose the deconstruction of the New Deal and Great Society programs that have been in their targets for generations.

Democrats actually have the people behind them. If ever there was a time for President Obama to use the bully pulpit and pressure the Republicans to compromise, this is it.

Senator Tom Harkin, D-Iowa, one of the savviest members of the Congress over the past three decades, is right when he says that Democrats have viable options. They can simply step back and allow tax rates to reset to where they were during the boom years of the late 1990s. Or, says Harkin, they can let the government grind to a standstill as Republicans fight to help billionaires.

“They’re willing to shut the government down in order to get tax breaks for the wealthy," Harkin says of GOP senators. "I say let them do it."

It’s an easy play. And this is the time to do it—when the political and fiscal battlelines are being defined in the aftermath of the 2010 midterm elections.

If the Obama administration and Democratic Congressional leaders are unwilling to make, then a logical question presents itself: when will they fight?

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